Corporate Reputation, Law and Institutional Context in the Very Long-term

The very first directors of the East India Company (EIC) knew as well as any modern CEO that they must always have an eye on their company’s reputation. Although they did not have to respond to Tweets, they faced other institutional pressures. During the period of special incorporation, charters of business enterprises such as the EIC often required the company to provide specific public benefits. So the EIC was as keen to defend the claim that its trade brought employment, maritime skills, and new markets for England as its critics were to condemn the company as an engine of private interest. By exploring this dynamic, my recent paper at the Saïd School investigated how legal environments have historically conditioned corporate behaviour through reputation. This exploration has implications not only for the changing law and society interface, but for current discussions of corporate social accountability.

Of course, the EIC’s seventeenth century charters did not reflect a precocious sense of corporate social responsibility as we might understand it. Instead, we encounter a very different conceptualization of the corporate form and the functioning of markets. To common lawyers of the seventeenth and eighteenth centuries the paradigmatic corporate forms were the town, trade society, or charity, which generated the bulk of lawsuits. So when contemporaries came to conceptualize trading corporations such as the Muscovy Company or the EIC, it was largely through the learning that had been established in case law of these other “lay corporations aggregate.” 

From this framework it was clear that a corporation — a town or trading concern — should “govern” its society and market. The language signaled that markets were not seen as self-regulating and abstract, but rather real, chaotic, and in the case of the EIC, distant and typically adversarial. The corporate government of foreign markets would secure an orderly trade, fund needed infrastructure, and prevent wily foreign merchants from dividing and conquering their English customers. This underlying conceptualization of the corporation, as a form of government that regulated markets, joined at the time with a sharpening analysis of empire and commercial power. Writers such as Richard Hakluyt (the Younger), who was directly employed by the EIC, observed the relationship between power and wealth, influence and trade. Thus the EIC could represent itself not only as a corporation establishing and governing its market, but one that did so in the wider, imperial interest of England and its people.

When contemporaries wanted to challenge monopolistic corporations such as the EIC they drew upon this institutional framework. Even from the earliest decades of the EIC’s existence, critics hurled charges that the directors pursued the trade only for the benefit of shareholders and hurt the public interest. During the trade depression of the 1620s, with parliamentary committees investigating, Gerard Malynes and Edward Misselden attacked the EIC’s reputation when they suggested that the company was draining England of much-needed silver and urged that the trade was “unprofitable for England.”  

The criticism was aimed at the EIC’s license to operate: according to the charter the grant of incorporation had been to promote “the Wealth of our People, … for the Increase of our Navigation, and the Advancement of lawful Traffick, to the Benefit of our Common Wealth…” As with other corporations, civic and commercial, a revocation clause had been inserted into the grant if the corporation was proven “not [to] be profitable” to the queen or the realm.

But the EIC was quick to defend its reputation against detractors. Thomas Mun, himself a director of the company, was among those who responded, reminding his readers of the many benefits the company provided. The EIC ultimately prevailed in the 1620s by providing information to defend its export of silver and projecting an image of responsible behaviour.

My larger, book-length project explores these linkages among reputation, law, and institutional context. As the historical analysis demonstrates, social accountability can be understood within very different institutional configurations, many now firmly rejected. But this research also suggests how regulatory frameworks can indirectly affect reputation, and by extension, corporate behaviour. The implication for corporate social accountability is the possibility of further illuminating this intersection between reputation, law and social responsibility.

David Chan Smith is Associate Professor at Wilfrid Laurier University.